Last Update: Jun 15, 2024


The Middle Class Spending Crash Explained

12/03/2014no responses


With Black Friday sales plunging and Cyber Monday growth slowing, it appears the chicken of stagnant wages and debt-saturation are coming home to roost for a massacred middle-class America. However, as WSJ reports “we are buying less stuff,” because the basic costs of necessities such as healthcare, food eaten at home, rent, education, and cellphones have surged.



As The Wall Street Journal reports,


Consumer spending continues to make up just over two-thirds of the U.S. economy. But where households spend that money has shifted significantly.


To see how it has moved, the Journal analyzed Labor Department data on 2013 out-of-pocket spending for the middle 60% of the population by income—households earning between about $18,000 and $95,000 a year, before taxes.


The data show they are losing ground. Overall spending for the group rose by about 2.3% over the six-year period from 2007, even as inflation totaled about 12%. At the same time, income for the group stagnated, rising less than half a percent.


With health care and other costs rising, these consumers spent less on furniture, entertainment, clothing and even child care, the Journal analysis found.

“Part of the story is that your income growth is slowing,” said Steven Fazzari, an economist and chairman of the sociology department at Washington University in St. Louis. “They’re spending more on necessities, cutting back on other types.”



Inflation much…


The overall cost of health care rose by 21% between 2007 and 2013, according to separate data from the federal Centers for Medicare and Medicaid Services. And employees paid more for workplace insurance, averaging $380 a month for family coverage in 2013, up 39% from 2007, data from the Kaiser Family Foundation shows.


This year, overall health-care spending is expected to continue growing at a modest pace, but government projections suggest U.S. households may spend slightly less, as more people obtain insurance, premium subsidies or Medicaid coverage.


Spending on mobile-phone service, meanwhile, has soared, rising nearly 50% since 2007, the year the iPhone came out and data plans became more commonplace.


Similarly, spending on home Internet service has soared by more than 80%. Last year, it made up about 0.8% of spending for middle income households, up from 0.4% six years earlier.

And this means discretionary spending has collapsed…


To make up the difference, middle income Americans have cut costs where they can. Spending on event admission and fees has fallen 16.5%, while spending for a broad category that includes boats, motor-homes, cameras and party rentals has fallen 31%.


Spending on household textiles, including bath and bed linens, has fallen 26.5%. Spending on care for children and the elderly has fallen 25%.

Simply put, the American Middle-class…


“I buy less stuff for myself,” she said. “We’ve cut a lot out—a lot of extras you used to get, so you can afford food and the electric. And you’re trying to save for retirement.”

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